Canadian economic growth likely to accelerate beyond 1.5 pct potential in 2017-2018, says Scotiabank

In the second half of 2016, Canada’s economic performance seems to have been mixed; however, activity is expected to bolster in 2017. During 2016, underlying output growth averaged around 1.5 percent year-on-year in the midst of weakness in exports and business investment.

According to a Scotiabank research report, the Canadian economic growth is likely to accelerate beyond the 1.5 percent potential to around 2 percent in 2017-2018, underpinned by stable consumer demand, bolstering U.S. domestic purchases of Canada’s exports, stabilizing investment, stronger oil prices and fiscal stimulus, including increased Canadian infrastructure spending. However, a slight slowdown in major housing markets is expected to slightly weigh on growth.

Consumers in Canada continue to be comparatively positive in spite of a mixed employment and tax picture for households. Consumer sentiment came back to its long-run average in December; however, some survey data show major purchase plans have weakened slightly in recent months. Domestic wage and income gains were held back throughout most of 2016, given the part-time nature of job creation, noted Scotiabank.

In all, real consumer spending is likely to expand in line with underlying real income growth of about 1.5 percent to 2 percent annually in 2017-2018. The boost to household purchasing power and discretionary spending from the Canadian Child Benefit should be partly countered by increased food and energy inflation, higher mortgage costs and municipal fee rises, added Scotiabank.

“Record indebtedness amid rising interest rates shall likely limit the capacity of households to ramp up spending notably, and should prompt a more cautious approach to further debt accumulation”, said Scotiabank.

At 07:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was slightly bearish at -73.9776, while the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -110.642. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex